Long-term care, what a depressing topic for old people and who cares, that’s what Medicare is for, right? Well, not so fast. While I’m sure most of us with 25 or more years until retirement aren’t spending a lot of time thinking about health care issues like long-term care, it’s actually a pretty important part of your financial plan, and a very costly possibility.
Before highlighting the recent study and getting to the poll, I wanted to briefly touch on what long-term care is, how much it costs, and how likely it is you’ll experience it in your lifetime. The first myth has to do with Medicare. Medicare does not cover long-term care. I’ll save the Medicare details for an upcoming post, but generally speaking, Medicare has only very limited coverage and will not pay for extended custodial care, which is what long-term care really is.
So if Medicare doesn’t pay for LTC, who does? Well, that’s the bad news. You do. You can either pay for it out of pocket, through LTC insurance, or once your assets are depleted, you can go on Medicaid. So, just how much does long-term care cost? The average one-year stay at a LTC facility is around $75,000. Yes, that isn’t a typo. It will usually cost you anywhere from $50,000 to $100,000 per year to receive long-term care. And when you consider most long-term care stays are around two years, that’s a lot of money. You can probably see how fast just a few years of care could wipe out a large portion of, or your entire retirement nest egg.
Understand Your Coverage
According to the recent study by America’s Health Insurance Plans (AHIP):
Nearly 60 percent [of Generation X respondents] mistakenly believe their current policies provide coverage or they do not know if they are already covered. Long-term care insurance provides coverage for long-term care, and it also preserves the independence so highly valued by Generation-X, as it allows the beneficiary to choose the setting in which care is received.
In terms of paying for it:
In order to finance their long-term care, 36 percent say they would rely on government assistance, such as Medicaid, to provide for long-term care. While Medicaid often provides coverage for long-term care services to qualifying low-income Americans, many people have to spend down their savings to the point of poverty in order to quality for this assistance. Others say they would use their retirement savings (26 percent), sell their assets (24 percent), rely on other insurance products (22 percent), or rely on family and friends (13 percent).
This is a big problem. Most people are aware of the government assistance programs, but don’t realize that in order to qualify, your quality of life would have to be reduced to the point of poverty. Only 22% said they would rely on insurance, and another 13% would rely on friends and family. I don’t know about you, but the last thing I want to burden my friends and family with later in life is to cover my health care.
What About You?
So, where do you stand in terms of thinking about long-term care? This generation obviously isn’t in a position to go out and start buying LTC policies yet, but it also shouldn’t be ignored until it’s too late. While we’re busy saving for retirement and projecting how much money we’ll need in our golden years, some thought should be put into the possibility of needing long-term health care. Whether that means allocating money to go towards an insurance premium or making sure your nest egg is big enough to withstand a stint in a long-term care facility, it should at least be part of your overall financial plan.
Now it’s your turn. Have you thought about LTC at all? Did you know how expensive it was or that government assistance was so poor?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.